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Questions for the audit committee to consider

Emerging markets: Does the company have the right talent, cultural understanding, age profile, experience and skills to develop credibility and relationships with critical stakeholders (such as regulators, company officials and key business leaders) in the emerging markets most important to the company?

Cleantech: Is the company's cleantech strategy optimized for both operational efficiency and revenue growth, and does it maximize opportunities in both mature and emerging markets?

Global banking: Has the company evaluated the effect of increased regulation on its capital requirements and determined how to manage those requirements while realizing the best possible returns?

Government: Is the company's long-term strategy aligned with government investments, pensions, social security systems, infrastructure and education?

Technology and innovation: Is the company satisfied with its ability to leverage newer technologies, such as social media and cloud-based services, analytics, security and privacy and virtualization solutions?

Demographic shifts: When the company makes location and investment decisions, does it consider shifts in demographic factors, such as the percentage of working-age population, education level and skills base?

As businesses and governments look to the future, they will need to think more about the opportunities and risks presented by evolving global trends.

From the growing power of emerging markets to rapid innovations in technology, which global trends are likely to shape the future of your business?

Businesses and governments must think more deeply about and respond more swiftly to the opportunities and risks presented by evolving trends. How leaders plan for and respond to those trends in the coming decade will determine which companies become the market leaders of tomorrow.

We looked at six global trends and developments that are shaping the business landscape, the first of which is that emerging markets are increasing their global power.

Spotlight on rapid growth of emerging markets

Today, emerging markets serve as the world's economic growth engine, and the far-reaching effects of their spectacular rise continue to play out. But their risks are often downplayed. Therefore, taking advantage of emerging-market opportunities requires careful planning and oversight.

Once viewed mainly as a source of natural resources or a low-cost manufacturing base, emerging markets will soon become equal competitors with mature economies, thereby commanding more economic and political power. Emerging markets are expected to generate about 70% of global growth over the next few years, with 40% of the global growth coming from China and India. The International Monetary Fund (IMF) forecasts that emerging markets' total GDP could overtake that of the developed economies by 2014.

Emerging and developed markets’ share of global GDP

Source: World Economic Outlook Database, International Monetary Fund, October 2010.

By 2020, the BRIC countries (Brazil, China, India and Russia) are expected to account for nearly half of all GDP growth worldwide.1

Competition through innovation

Working to serve customers of limited means, the emerging market leaders often produce innovative designs that reduce manufacturing costs and sometimes disrupt entire industries. This trend is already underway in India where Tata Motors is producing the Nano — a car priced at US$2,900 — less than half the cost of any other car on the market worldwide.2

Consumer growth and urbanization

As the world population rises, so will the number of consumers. By 2030, the combined purchasing power of the global middle class is estimated to more than double. Most of the world's new middle class will live in the emerging world, and almost all will live in smaller cities not yet built.

This surge of urbanization will stimulate business opportunities that will push multinational companies to extend selling efforts beyond the first-tier locations that have absorbed their attention thus far.

In addition, mass urbanization will place huge strains on infrastructure — physical infrastructure such as water supply, sanitation and power systems, and soft infrastructure, such as recruitment agencies and intermediaries to deal with customer credit checks.

Building or upgrading infrastructure to cope with the growing urban middle class will likely require public-private partnerships, new approaches to equity funding and the development of capital markets.

Questions for the audit committee to consider

Emerging markets: Does the company have the right talent, cultural understanding, age profile, experience and skills to develop credibility and relationships with critical stakeholders (such as regulators, company officials and key business leaders) in the emerging markets most important to the company?

Cleantech: Is the company's cleantech strategy optimized for both operational efficiency and revenue growth, and does it maximize opportunities in both mature and emerging markets?

Global banking: Has the company evaluated the effect of increased regulation on its capital requirements and determined how to manage those requirements while realizing the best possible returns?

Government: Is the company's long-term strategy aligned with government investments, pensions, social security systems, infrastructure and education?

Technology and innovation: Is the company satisfied with its ability to leverage newer technologies, such as social media and cloud-based services, analytics, security and privacy and virtualization solutions?

Demographic shifts: When the company makes location and investment decisions, does it consider shifts in demographic factors, such as the percentage of working-age population, education level and skills base?

New battlegrounds

The BRICs are having a major effect on their regional trading partners and more distant, resource-rich countries, many of which are being pulled into their economic orbit. In 2009, emerging-to-emerging (E2E) trade reached US$2.9 trillion.3

The massive flow of investment among emerging markets is well on its way to creating a second tier of emerging market leaders. As pressure for resources increases, we expect a battle for first mover advantage among emerging heroes, global players and emerging market governments in regions such as the Middle East and Africa.

In Nigeria, for example, the Chinese Government is helping to establish two special economic zones.4 China will invest US$500 million in the zones, which will focus on manufacturing machines and mineral extraction. China is also involved in similar programs in Ethiopia and Egypt.

Greater power

Along with growing economic strength comes the power to influence world economic policy. For example, in October 2010, emerging economies gained a greater voice under a landmark agreement that gave 6% of voting shares in the IMF to dynamic emerging countries such as China.5 Under the agreement, China will become the IMF's third-largest member.

Of course, it would be a mistake to see economic growth in the emerging markets as a winner-take-all contest, with developed countries on the losing side. Billions of new middle-class consumers in the emerging markets represent new markets for developed-world exports and companies based in developed countries.

Emerging market corporations are another big new market opportunity; business-to-business sales to China and India, for example, are a key factor in Germany's strong export economy.

Redefining the strategy

Emerging markets present a massive opportunity, but to capitalize on it, companies need to develop a clear strategy to address the multitude of issues. Many will have to rethink their business models, considering, for example, the relatively low spending power of many consumers in the developing world.

They will also have to prepare for fierce competition from local enterprises that often enjoy advantages, such as strong distribution capabilities, superior government relations or lower-cost business models. Getting these and other elements right will be vital to companies' long-term success.

Other global trends

In addition to the rising power of emerging markets, we believe five other trends will shape the business landscape:

Cleantech becomes a competitive advantage

Global banking seeks recovery through transformation

Governments enhance ties with the private sector

Rapid technology innovation creates a smart, mobile world

Demographic shifts transform the global workforce

Winners and losers

As these trends change, businesses will grow and compete, and winners and losers inevitably will emerge. The winners, easy to spot, will be organizations that constantly monitor broad trends in the external environment, embrace technology and look for talent everywhere, especially among previously neglected segments of the workforce, such as women, minorities and older workers.

As businesses and governments look to the future, they will need to think more about the opportunities and risks presented by evolving global trends. With a different mindset, companies can re-imagine what is possible, discovering what they can do that is new and how best to execute on it.

Those that succeed may find themselves not just navigating tomorrow's global trends, but actually shaping them.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.